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Section 1: 10-K (10-K)

smta-10k_20191231.htm
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) 

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2019

Commission file number 001-38414

 

SMTA LIQUIDATING TRUST

(Exact name of registrant as specified in its charter)

 

Maryland

 

 

 

82-6712510

(State or other jurisdiction of

incorporation or organization)

 

 

 

(I.R.S. Employer Identification Number)

 

 

 

 

 

2727 North Harwood Street, Suite 300,

Dallas, Texas 75201

 

 

 

(972) 476-1409

(Address of principal executive offices; zip code)

 

 

 

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class:

 

Trading Symbol(s):

 

Name of exchange on which registered:

None

 

None

 

None

 

Securities registered pursuant to Section 12(g) of the Act: None.

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     Yes   No   

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.      Yes   No            

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.         Yes   No              

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).         Yes   No         

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.                    

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).       Yes   No             

As of June 28, 2019 (the last business day of the registrant’s most recently completed second fiscal quarter), the aggregate market value of Spirit MTA REIT's common shares, $0.01 par value, held by non-affiliates of the Registrant, was $360.0 million based on the last reported sale price of $8.34 per share on the New York Stock Exchange on June 28, 2019.

As of March 30, 2020, there were 43,177,966 units of beneficial interest in SMTA Liquidating Trust outstanding.

Documents Incorporated by Reference

None.

*SMTA Liquidating Trust is the transferee of the assets and liabilities of Spirit MTA REIT and files reports under the Commission file number for Spirit MTA REIT. Spirit MTA REIT filed a Form 15 on January 1, 2020, indicating its notice of termination of registration.

 

 

 


 

GLOSSARY

 

2018 Incentive Award Plan

Spirit MTA REIT and Spirit MTA REIT, L.P. 2018 Incentive Award Plan

Annualized Cash Rent

Annualized Contractual Rent, less any rent reserved for

Annualized Contractual Rent

Contractual Rent multiplied by twelve

ASC

Accounting Standards Codification

Asset Management Agreement

Asset Management Agreement between Spirit MTA REIT and its Manager dated May 31, 2018

ASU

Accounting Standards Update

CMBS

Commercial mortgage-backed securities

Code

Internal Revenue Code of 1986, as amended

Collateral Pool

Pool of collateral assets that are pledged to the indenture trustee for the benefit of the noteholders and secure obligations of issuers under Master Trust 2014

Contractual Rent

Monthly contractual cash rent, excluding percentage rents, from properties owned fee-simple or ground leased, recognized during the final month of the reporting period, adjusted to exclude amounts received from properties sold during that period and adjusted to include a full month of contractual rent for properties acquired during that period. We use Contractual Rent when calculating certain metrics that are useful to evaluate portfolio credit, asset type, industry, and geographic diversity and to manage risk.

CPI

Consumer Price Index

Exchange Act

Securities Exchange Act of 1934, as amended

FASB

Financial Accounting Standards Board

GAAP

Generally Accepted Accounting Principles in the United States

Interim Management Agreement

Interim Management Agreement dated June 2, 2019, by and between SMTA and the Manager for the Manager to provide external management services to the Liquidating Trust

LIBOR

London Interbank Offered Rate

Liquidating Trust

SMTA Liquidating Trust, a Maryland common law trust, to which the remaining assets and liabilities of SMTA were transferred on January 1, 2020 in accordance with the Plan of Liquidation

Liquidity Reserve

Cash held on deposit until there is a cashflow shortfall as defined in the Master Trust 2014 agreements or a liquidation of Master Trust 2014 occurs

Manager

A wholly-owned subsidiary of Spirit

Master Trust 2014

The asset-backed securitization trust established in 2005, and amended and restated in 2014, which issues non-recourse net-lease mortgage notes collateralized by commercial real estate, net-leases and mortgage loans from time to time. Indirect special purpose entity subsidiaries of the Company are the borrowers.

Master Trust 2014 Sale

The sale of the entities comprising Master Trust 2014 to SVC completed September 20, 2019

Other Properties

One of two reportable segments consisting of all properties not included in the Master Trust 2014 Collateral Pool

Plan of Liquidation

Plan providing for the winding up and complete liquidation of SMTA, and the dissolution and termination of SMTA or the conversion of SMTA to another liquidating entity, following the closing of the Master Trust 2014 Sale

Property Management and Servicing Agreement

Second amended and restated agreement governing the management services and special services provided to Master Trust 2014 by Spirit Realty, L.P., dated as of May 20, 2014, as amended, supplemented, amended and restated or otherwise modified

Real Estate Investment Value

The gross acquisition cost, including capitalized transaction costs, plus improvements and less impairments, if any

REIT

Real Estate Investment Trust

Release Account

Proceeds from the sale of assets securing Master Trust 2014 held in a restricted account until a qualifying substitution is made or the funds are applied as prepayment of principal

Separation and Distribution Agreement

Separation and Distribution Agreement between Spirit Realty Capital, Inc. and Spirit MTA REIT dated May 21, 2018

SEC

Securities and Exchange Commission

Shopko

Shopko Stores Inc. and its affiliates and subsidiaries, including Specialty Retail Shops Holding Corp.

Shopko B-1 Term Loan

The secured loan made to Shopko in the initial principal amount of $35.0 million

Shopko CMBS Loan Agreements

The combination of the non-recourse mortgage loan agreement, establishing an aggregate loan amount of $125.0 million, and the mezzanine loan agreement, establishing an aggregate loan amount of $40.0 million

Shopko Lenders

An institutional lender and certain other lenders from time to time party to the Shopko CMBS Loan Agreements

SMTA

Spirit MTA REIT

 


 

Spin-Off

Creation of an independent, publicly traded REIT, SMTA, through the a pro rata distribution of one SMTA common share for every ten shares of Spirit common stock held by each of Spirit's stockholders as of May 18, 2018, the record date

Spirit

Spirit Realty Capital, Inc.

SVC

Service Properties Trust (f/k/a Hospitality Properties Trust, or HPT)

SubREIT

Spirit MTA SubREIT, Inc., a wholly-owned subsidiary of SMTA

TRS

Taxable REIT Subsidiary, a corporation, other than a REIT, in which a REIT directly or indirectly holds stock or shares, and that has made a joint election with such REIT to be treated as a taxable REIT subsidiary

Trust Agreement

Trust Agreement dated January 1, 2020 for the creation and operation of SMTA Liquidating Trust

Trust Units

Non-transferrable units of beneficial interest of the Liquidating Trust distributed to SMTA shareholders on January 1, 2020, with each shareholder receiving one Trust Unit for each common share of SMTA held by the shareholder as of December 31, 2019

U.S.

United States of America

Vacant

Owned properties that are not economically yielding

 

Unless otherwise indicated or unless the context requires otherwise, all references to the "Company," "we," "us" or "our" refer to Spirit MTA REIT and its wholly-owned subsidiaries for periods prior to January 1, 2020 and SMTA Liquidating Trust for periods subsequent to January 1, 2020, as the context requires.

 

 


 

INDEX

 

PART I

 

5

Item 1.

Business

6

Item 1A.

Risk Factors

8

Item 1B.

Unresolved Staff Comments

12

Item 2.

Properties

13

Item 3.

Legal Proceedings

13

Item 4.

Mine Safety Disclosure

13

PART II

 

14

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

14

Item 6.

Selected Financial Data

14

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

16

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

23

Item 8.

Financial Statements and Supplementary Data

24

PART III

 

51

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

51

Item 9A.

Controls and Procedures

51

Item 9B.

Other Information

51

Item 10.

Trustees, Executive Officers and Corporate Governance

51

Item 11.

Executive Compensation

54

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

57

Item 13.

Certain Relationships and Related Transactions, and Trustee Independence

58

Item 14.

Principal Accountant Fees and Services

59

PART IV

 

60

Item 15.

Exhibits, Financial Statement Schedules

60

SIGNATURES

 

67

 

 

 

 

 


 

PART I

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). When used in this Annual Report on Form 10-K, the words “estimate,” “anticipate,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “seek,” “approximately” or “plan,” or the negative of these words or similar words or phrases that are predictions of or indicate future events or trends and which do not relate solely to historical matters are intended to identify forward-looking statements. You can also identify forward-looking statements by discussions of strategy, plans or intentions of management.

Forward-looking statements involve numerous risks and uncertainties and you should not rely on them as predictions of future events. Forward-looking statements depend on assumptions, data or methods which may be incorrect or imprecise and we may not be able to realize them. We do not guarantee that the transactions and events described will happen as described (or that they will happen at all).

The following risks and uncertainties, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements:

 

industry and economic conditions;

 

our dependence on our external Manager, a subsidiary of Spirit Realty Capital, Inc. to conduct our business and achieve our investment objectives, including managing and liquidating our remaining assets;

 

unknown liabilities related to potential claims made by SVC in conjunction with the Master Trust 2014 sale;

 

the financial performance of our remaining tenants, in particular as a result of the recent global outbreak of novel coronavirus disease (COVID-19);

 

the impact of any financial, accounting, legal or regulatory issues, bankruptcy or litigation that may affect us or our remaining tenants;

 

volatility and uncertainty in the financial markets, including potential fluctuations in the consumer price index; and

 

general risks affecting the real estate industry and local real estate markets (including, without limitation, market value of our properties, potential illiquidity of our remaining real estate investments, condemnations, and potential damage from natural disasters).

You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this Annual Report on Form 10-K. While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. We disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, new information, data or methods, future events or other changes, except as required by law.

Available Information

The Company's principal executive offices are located at 2727 North Harwood Street, Suite 300, Dallas, Texas 75201. Our telephone number at that location is 972-476-1409. We maintain a website at www.spiritmastertrust.com. Access to copies of our annual report on Form 10-K and the prior annual report on Form 10-K filed by SMTA, quarterly reports on Form 10-Q filed by SMTA, current reports on Form 8-K, proxy statements of SMTA and other materials previously filed with or furnished to the SEC, including amendments to such filings or furnishings, may be obtained free of charge from our website, or through the SEC’s website, www.sec.gov. On January 3, 2020, we filed with the SEC a Form 15 to terminate the registration of SMTA’s Common Shares under the Exchange Act. Going forward, the Trustees will file with the SEC (i) Annual Reports on Form 10-K (including with unaudited financial statements) and (ii) Current Reports on Form 8-K upon the occurrence of material events relating to us. These filings will be available promptly on our website after we file them with, or furnish them to, the SEC.

5


 

Item 1.     Business

OVERVIEW

Until January 1, 2020, our predecessor, Spirit MTA REIT (or SMTA), operated as an externally managed REIT that owned and managed a portfolio of single-tenant, operationally essential real estate throughout the United States that was generally leased on a long-term, triple-net basis to tenants operating within retail, office, and industrial property types. SMTA began operations through predecessor legal entities which were wholly-owned subsidiaries of Spirit Realty Capital Inc., or Spirit. On May 31, 2018, Spirit completed a spin-off that resulted in SMTA becoming an independent, publicly traded company. In conjunction with the spin-off, SMTA and a wholly-owned subsidiary of Spirit, or the Manager, entered into an Asset Management Agreement under which the Manager provided external management of SMTA for a flat rate.

MASTER TRUST 2014 SALE

On September 20, 2019, SMTA completed the sale of substantially all of its assets by means of a sale to Service Properties Trust (f/k/a Hospitality Properties Trust), or SVC, of the entities that comprised SMTA’s Master Trust 2014, or the Master Trust 2014 Sale, an asset-backed securitization trust which issued non-recourse asset-backed securities collateralized by commercial real estate, net-leases and mortgage loans, as well as three assets owned by Spirit, to SVC, for $2.4 billion in total cash consideration, subject to certain adjustments.   

As a result of the Master Trust 2014 Sale and the sale of other owned properties, SMTA owned 11 properties as of December 31, 2019.

DISTRIBUTIONS TO SMTA SHAREHOLDERS

On October 23, 2019, SMTA made a liquidating distribution of $8.00 per share to its shareholders. This distribution was in addition to total dividends of $1.99 per share paid by SMTA to its shareholders earlier in 2019 and a total of $0.33 per share paid to SMTA shareholders in 2018 subsequent to the spin-off.  

LIQUIDATION OF SMTA

On July 11, 2019, the board of trustees of SMTA adopted a plan of voluntary dissolution, or the Plan of Liquidation, which was subsequently approved by the shareholders of SMTA on September 4, 2019. The Plan of Liquidation provided for an orderly sale of SMTA’s remaining assets, payment of its liabilities and other obligations, and the winding up of our operations and our dissolution.

In accordance with the Plan of Liquidation, as of 12:01 A.M. Eastern Time on January 1, 2020, or the Effective Time, SMTA entered into a Liquidating Trust Agreement, or the Trust Agreement, for the creation and operation of a newly-created trust called SMTA Liquidating Trust, a Maryland common law trust, or the Liquidating Trust and transferred to the Liquidating Trust our remaining 11 properties and other assets then owned by SMTA (subject to all of SMTA’s liabilities). Pursuant to the Trust Agreement, as of the Effective Time, Steven G. Panagos, Steven H. Shepsman, Richard J. Stockton and Thomas J. Sullivan, the four members of the board of trustees of SMTA, were appointed as the trustees of the Liquidating Trust, or the Liquidating Trustees. Also, as of the Effective Time, all of the units of beneficial interests of the Liquidating Trust, or the Trust Units, were distributed to SMTA’s shareholders, with each shareholder receiving one Trust Unit for each common share of SMTA then held of record by such shareholder.

As of the Effective Time, SMTA was dissolved and terminated and all of the outstanding common shares of SMTA were cancelled and are no longer outstanding. Accordingly, on January 3, 2020, we filed a Form 15 with the Securities and Exchange Commission, or the SEC, to terminate the registration of the common shares of SMTA under the Securities Exchange Act of 1934, as amended, or the Exchange Act.

The Liquidating Trust’s activities are restricted to winding up the affairs of SMTA as promptly as reasonably possible. Under the terms of the Trust Agreement, we will not acquire any new properties, and are focused on liquidating our remaining assets. The Liquidating Trust will terminate upon the earlier of the distribution of all of the Liquidating Trust’s assets in accordance with the terms of the Trust Agreement, or the expiration of a period of three years from the effective date of the Liquidating Trust (or January 1, 2023). The existence of the Liquidating Trust may, however, be extended for fixed-term extensions under certain circumstances at the Liquidating Trustees’ reasonable discretion pursuant to the terms of the Trust Agreement. The aggregate of all such extensions may not exceed three years unless the Liquidating Trustees receive a favorable ruling from the Internal Revenue Service that any further extension would not adversely affect its status as a liquidating trust within the meaning of Treasury Regulations Section 301.7701-4(d) for federal income tax purposes. This description of our Trust Agreement is qualified in its entirety by the text of the Trust Agreement, which has been incorporated by reference as an exhibit to this Annual Report.

6


 

THE MANAGER

In connection with the closing of the Master Trust 2014 Sale, the Asset Management Agreement between SMTA and the Manager was terminated and replaced by an Interim Management Agreement under which the Manager has agreed to provide external management services for an initial annual term beginning September 20, 2019 for $1 million, plus certain cost reimbursements. The Interim Management Agreement was assigned by SMTA to the Liquidating Trust and remains in effect.

Pursuant to the Interim Management Agreement, the Liquidating Trust is responsible for the cost of its executive officer’s base salary, and with the approval of its trustees, the executive officer’s cash and equity incentive compensation. The Interim Management Agreement may be terminated by the Liquidating Trust at any time upon 30 days’ prior written notice to the Manager, or by the Manager upon 180 days’ prior written notice (provided that such notice may not be given prior to 180 days following September 20, 2019), in each case without payment of a termination fee. On March 18, 2020, the Manager notified the Liquidating Trust that the Manager intends to terminate the Interim Asset Management Agreement, effective as of September 14, 2020. The Liquidating Trustees expect to retain management services in connection with the termination of the Interim Management Agreement and, as such, the termination of the Interim Management Agreement is not expected to materially adversely impact the wind-down of the Liquidating Trust.

Under the terms of the Interim Management Agreement, the Manager has responsibility for our day-to-day affairs, administers our accounting and bookkeeping functions, serves as a consultant in connection with policy decisions to be made by the Liquidating Trustees, manages our remaining properties and renders other services deemed appropriate by the Liquidating Trustees. We do not have any employees. The individuals who perform services under the Interim Management Agreement are employees of the Manager or its affiliates. This description of our Interim Management Agreement is qualified in its entirety by the text of the Interim Management Agreement, which has been included as an exhibit to this Annual Report.

Current Investment Objectives and Policies

In accordance with the Trust Agreement, we are committed to winding up the affairs of the Liquidating Trust as promptly as reasonably possible and we currently consider various factors when evaluating potential property dispositions. These factors include, without limitation, (i) the ability to sell our remaining assets at the highest possible price in order to maximize the return to our beneficiaries and (ii) the ability of prospective buyers to finance the acquisition of our assets. Until we successfully sell our remaining assets, our primary operating strategy is to enhance the performance and value of the properties through strategies designed to address the needs of current and prospective tenants.

Real Estate Portfolio

As of December 31, 2019, SMTA owned 11 properties, all of which were transferred to the Liquidating Trust. On January 17, 2020, we completed the sale of one vacant property located in Tyler, TX and received $1.9 million in proceeds. On February 21, 2020, we completed the sale of one occupied property located in Orange, TX and received $2.3 million in proceeds. As of the date of this report, we own a total of nine properties, four of which are vacant. Five of the nine properties are located in Texas (one vacant and four occupied). The other four properties are located in Nevada (occupied), Kansas (vacant), California (vacant) and Colorado (vacant).

As of December 31, 2019, approximately 41% of the total gross leasable area of our properties was leased and the estimated liquidation value for these properties was approximately $37.5 million. As of the date of this report, approximately 40% of the total gross leasable area of our properties was leased and the estimated liquidation value for these properties was approximately $33.1 million.

U.S. Federal Income Tax Treatment

The Liquidating Trust is intended to qualify as a “liquidating trust” for U.S. federal income tax purposes that is treated as a “grantor trust” for U.S. federal income tax purposes. Accordingly, each Trust Unit represents ownership of an undivided proportionate interest in all of the assets and liabilities of the Liquidating Trust, and each holder of Trust Units will be treated for U.S. federal income tax purposes as receiving or paying directly a pro rata portion of all income, gain, loss, deduction and credit of the Liquidating Trust. Each holder of Trust Units must report its pro rata share of such items on its own U.S. federal income tax return. The Liquidating Trustees will provide to each holder of Trust Units after each year end a detailed itemized statement that reports on a per unit basis the holder’s allocable share of all the various categories of revenue and expense of the Liquidating Trust for the year. Each holder of Trust Units is urged to consult with its own tax advisors regarding the filing requirements and the appropriate tax reporting of this information on its tax returns.

7


 

Regulation

General

Our remaining properties are subject to various covenants, laws, ordinances and regulations, including regulations relating to common areas and fire and safety requirements. We believe that each of our properties has the necessary permits and approvals to operate as intended.

Americans With Disabilities Act

Pursuant to the ADA, our properties are required to meet federal requirements related to access and use by persons with disabilities. Compliance with the ADA, as well as a number of additional federal, state and local laws and regulations, may require modifications to our properties. Noncompliance with these laws or regulations could result in the imposition of fines or an award of damages to private litigants, as well as the incurrence of the costs of making modifications to attain compliance, and future legislation could impose additional financial obligations or restrictions on our properties. We could be held liable as the owner of the property for a failure of one of our tenants to comply with such laws or regulations.

Environmental Matters

Federal, state and local environmental laws and regulations regulate, and impose liability for, releases of hazardous or toxic substances into the environment. Under certain of these laws and regulations, a current or previous owner, operator or tenant of real estate may be required to investigate and clean up hazardous or toxic substances, hazardous wastes or petroleum product releases or threats of releases at the property, and may be held liable to a government entity or to third parties for property damage and for investigation, clean-up and monitoring costs incurred by those parties in connection with actual or threatened contamination. These laws typically impose clean-up responsibility and liability without regard to fault, or whether or not the owner, operator or tenant knew of or caused the presence of the contamination. The liability under these laws may be joint and several for the full amount of the investigation, clean-up and monitoring costs incurred or to be incurred or actions to be undertaken, although a party held jointly and severally liable may seek contributions from other identified, solvent, responsible parties for their fair share toward these costs. These costs may be substantial and can exceed the value of the property and the value of our remaining properties. The presence of contamination, or the failure to properly remediate contamination, on a property may adversely affect the ability of the owner, operator or tenant to sell or rent that property or to borrow using the property as collateral and may adversely impact our investment in that property.

Item 1A. Risk Factors

You should consider carefully the risks and uncertainties described below, together with all of the other information in this Annual Report on Form 10-K, which could materially affect our business, financial condition, results of operations and Plan of Liquidation. The risks described below are not the only risks facing us. Risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially affect our business, financial condition, results of operations and Plan of Liquidation.

RISKS RELATED TO THE PLAN OF LIQUIDATION

Our expectations about the amount of any liquidating distributions we pay to holders of Trust Units and when we will pay them are based on many estimates and assumptions, one or more of which may prove to be incorrect.

In accordance with the Trust Agreement, our objectives are to (i) complete the orderly liquidation of our assets pursuant to the Plan of Liquidation; and (ii) maximize value to holders of Trust Units by selling all of our remaining real estate properties, providing for the payment of contingent liabilities, distributing the net proceeds from liquidation to our holders of Trust Units and winding up our operations and dissolving our company. We do not expect to pay regular distributions during the liquidation process. We expect to pay liquidating distributions to holders of Trust Units from time to time as we sell our remaining properties, pay all of our known liabilities and provide for unknown liabilities.

We can give no assurance regarding the timing of the sale of our remaining properties, the sale prices we will receive for such properties, and the amount or timing of any liquidating distributions. We intend to maintain adequate cash reserves for liquidity and other future capital needs but cannot assure you we will be able to do so.

8


 

If we are unable to find buyers for our remaining properties, our liquidating distributions to holders of Trust Units may be delayed or reduced.

As of the date of this report, none of our remaining properties are subject to a binding sales agreement providing for their disposition. However, we may have overestimated the sales price that we will ultimately be able to obtain for these properties. For example, in order to find a buyer in a timely manner, we may be required to lower our asking price below the low end of our current estimate of the property’s fair value. If we are not able to find buyers for these properties in a timely manner or if we have overestimated the sales prices we will receive, our liquidating distributions to holders of Trust Units would be delayed and/or reduced. Furthermore, the projected amounts of liquidating distributions to holders of Trust Units are based upon current appraisals and/or other indicators of value of our properties, but real estate market values are constantly changing and fluctuate with changes in interest rates, supply and demand dynamics, occupancy percentages, lease rates, the availability of suitable buyers, and the perceived quality and dependability of income flows from tenancies.

If any of the parties to a future sale agreement default under such agreement, or if a sale does not otherwise close, our liquidating distributions to holders of Trust Units may be delayed or reduced.

The consummation of any future potential sale transaction will be subject to the satisfaction of applicable closing conditions. If a transaction contemplated by a future sale agreement does not close because of a buyer default, failure of a closing condition or for any other reason, we will need to locate a new buyer for the property, which we may be unable to do promptly or at a price or on terms that are as favorable as the failed transaction. We will also incur additional costs involved in locating a new buyer and negotiating a new sale agreement for the property. These additional costs are not included in our projections. In the event that we incur these additional costs, our liquidating distributions to holders of Trust Units would be delayed and/or reduced.

Further decreases in property values may reduce the amount that we ultimately receive upon the sale of our properties.

The underlying value of our properties may be reduced by a number of factors that are beyond our control, including, without limitation, the following:

 

the recent global outbreak of novel coronavirus disease (COVID-19);

 

adverse changes in national, regional or local economic conditions;

 

the financial performance of our remaining tenants, and the ability of our tenants to satisfy their obligations under their leases;

 

terminations and/or less favourable renewals of leases by our tenants;

 

competition from similar properties in the applicable geographic region;

 

changes in real estate tax rates and other operating expenses;

 

environmental risks related to the presence of hazardous or toxic substances or materials on our properties;

 

illiquid nature of real estate compared to most other financial assets;

 

changes in laws and regulations, including those governing real estate usage and zoning;

 

changes in interest rates and the availability of financing for potential purchasers; and

 

changes in the general economic and business climate.

Any further reduction in the value of our remaining properties may make it more difficult for us to sell any or all such properties for the amounts that we have targeted. Reductions in the amount that we receive when we sell our interest in the properties could decrease or delay the payment of liquidating distributions to holders of Trust Units.

We will continue to incur liabilities and expenses that will reduce the amount available for distribution out of the liquidation to holders of Trust Units.

The liquidation and dissolution process is subject to numerous uncertainties and may result in less capital than anticipated, or none at all, remaining available for future distribution to holders of Trust Units. The precise nature, amount and timing of any future distribution to holders of Trust Units will depend on and could be delayed by, among other things, currently unknown creditor claims or lawsuits and unexpected or greater than expected expenses. Furthermore, we cannot provide any assurances that we will actually make any distributions.

9


 

We will continue to incur certain expenses associated with complying with public company reporting requirements.

In accordance with the Trust Agreement, we will be required to continue to comply with certain reporting requirements of the Exchange Act, even if compliance with these reporting requirements is economically burdensome. We expect to continue to file annual reports on Form 10-K and current reports on Form 8-K to disclose material events relating to our liquidation, along with any other reports that the SEC may require. While the financial statements contained in such reports will be prepared in accordance with generally accepted accounting principles, it is not contemplated that the financial statements will be reviewed or audited by independent registered public accountants. We will continue to incur costs associated with the preparation and filing of those reports, including legal and accounting fees, and we will continue to apply resources of the Trust to comply with our SEC reporting obligations. These expenses may be substantial and may reduce any distributions that we make to holders of Trust Units.

The Plan of Liquidation, the Trust Agreement, and the actions and transactions contemplated thereby, may lead to shareholder litigation, which could result in substantial costs and distract management.

Historically, extraordinary corporate actions such as the Plan of Liquidation, the Trust Agreement, and the actions and transactions contemplated thereby, sometimes lead to federal securities class action lawsuits or state law claims being filed against the company taking such actions. We may become involved in this type of litigation as a result of such extraordinary actions. If such a lawsuit is filed against us, the litigation is likely to be expensive and, even if we ultimately prevail, the process will divert our attention from winding up the Liquidating Trust’s affairs and selling the remaining properties. If we were not to prevail in such a lawsuit, we cannot predict the amount of any damages for which we may be obligated. However, if applicable, any such damages may be significant and may reduce the amounts available for any distributions to holders of Trust Units.

Holders of Trust Units may recognize taxable income as a result of their ownership of Trust Units.

The Liquidating Trust is intended to qualify as a “liquidating trust” for U.S. federal income tax purposes that is treated as a “grantor trust” for U.S. federal income tax purposes. Accordingly, each Trust Unit represents ownership of an undivided proportionate interest in all of the assets and liabilities of the Liquidating Trust, and each holder of Trust Units will be treated for U.S. federal income tax purposes as receiving or paying directly a pro rata portion of all income, gain, loss, deduction and credit of the Liquidating Trust. A holder of Trust Units will be taxed each year on its share of revenues from the Liquidating Trust, net of such holder’s share of expenses of the Liquidating Trust whether or not the holder of Trust Units receives a distribution of cash from the Liquidating Trust that year. The long-term or short-term character of any capital gain or loss recognized in connection with the sale of the Liquidating Trust’s assets will be determined based upon a holding period commencing at the time of the acquisition by each holder of Trust Units.

Because holders of Trust Units are treated as owning their respective shares of the Liquidating Trust’s assets, they are expected to be treated as directly engaging in the operations of the Liquidating Trust. As such, tax-exempt U.S. holders of Trust Units may realize “unrelated business taxable income” with respect to the Liquidating Trust’s operations and non-U.S. holders of Trust Units may be considered to derive income that is effectively connected with a U.S. trade or business. In that event, non-U.S. holders would be subject to U.S. federal income tax (including pursuant to the Foreign Investment in Real Property Tax Act of 1980) and, for corporate non-U.S. holders, branch profits tax. Accordingly, under current law, the liquidating trust is expected to withhold 21% of any distributions made to non-U.S. holders of Trust Units. That amount will be creditable against the non-U.S. holder’s U.S. federal income tax liability. The Liquidating Trust currently holds its real estate properties through entities that are taxable as corporations for U.S. federal income tax purposes, which may mitigate certain of the consequences described in this paragraph. Tax-exempt U.S. holders and non-U.S. holders should consult their own tax advisors regarding the U.S. federal income tax consequences of holding Trust Units.  

If the Liquidating Trust fails to qualify as a liquidating trust for U.S. federal income tax purposes, the consequences to the holders of Trust Units will depend on the reason for the failure to qualify, and, under certain circumstances, the Liquidating Trust could be treated as an association taxable as a corporation for U.S. federal income tax purposes, rather than as a trust. If the Liquidating Trust is taxable as a corporation, the Liquidating Trust itself will be subject to U.S. federal income tax at the applicable corporate income tax rate, which is currently 21%. In that case, distributions made by the Liquidating Trust would be reduced by this additional level of tax, and a holder of Trust Units would be subject to tax upon the receipt of distributions that constitute dividends from the Liquidating Trust rather than taking into account its share of the Liquidating Trust’s taxable items on an annual basis.

10


 

RISKS RELATED TO OUR BUSINESS AND REMAINING PROPERTIES

Costs of compliance with, or liabilities related to, environmental laws may materially and adversely affect us.

The remaining properties we own or other properties we have owned in the past may subject us to known and unknown environmental liabilities. Under various federal, state and local laws and regulations relating to the environment, as a current or former owner or operator of real property, we may be liable for costs and damages resulting from the presence or discharge of hazardous or toxic substances, waste or petroleum products at, on, in, under or migrating from such property, including costs to investigate and clean up such contamination and liability for harm to natural resources. We may face liability regardless of:

 

our knowledge of the contamination;

 

the timing of the contamination;

 

the cause of the contamination; or

 

the existence of other parties responsible for the contamination of the property.

There may be environmental liabilities associated with our properties of which we are unaware. Historically, we obtained Phase I environmental site assessments on all properties that we financed or acquired. Phase I environmental site assessments are limited in scope and therefore may not reveal all environmental conditions affecting a property. Therefore, there could be undiscovered environmental liabilities on the properties we own or that we owned in the past.

Our environmental liabilities may include property damage, personal injury, investigation and clean-up costs. These costs could be substantial. Although we have obtained insurance for environmental liability for certain properties that were deemed to warrant coverage, our current insurance on the remaining properties may be insufficient to address any particular environmental situation and we may be unable to maintain insurance for environmental matters, at a reasonable cost or at all, in the future. If our environmental liability insurance is inadequate, we may become subject to material losses for environmental liabilities. Our ability to receive the benefits of any environmental liability insurance policy will depend on the financial stability of our insurance company and the position it takes with respect to our insurance policies. If we were to become subject to significant environmental liabilities, we could be materially and adversely affected.

Insurance on our properties may not adequately cover all losses, which could materially and adversely affect us.

Our tenants are required to maintain liability and property insurance coverage for the properties they lease from us pursuant to triple-net leases. Pursuant to such leases, our tenants are generally required to name us as additional insureds on their liability policies and additional insured and/or loss payee on their property policies. All tenants are required to maintain casualty coverage and most carry limits at 100% of replacement cost. Depending on the location of the property, losses of a catastrophic nature, such as those caused by earthquakes and floods, may be covered by insurance policies that are held by our tenant with limitations such as large deductibles or co-payments that a tenant may not be able to meet. In addition, losses of a catastrophic nature, such as those caused by wind/hail, hurricanes, terrorism or acts of war, may be uninsurable or not economically insurable. Further, any business interruption insurance for which our tenants contracted may be subject to limitations or exclusions, including for losses arising from closures or curtailment of operations as a result of an epidemic or pandemic disease.

As of the date of this report, five of our nine properties are located in Texas, representing the highest concentration of our assets. We recognize that the frequency and/or intensity of extreme weather events may continue to increase due to climate change, and as a result, our exposure to these events could increase. These weather conditions also disrupt our business and the business of our tenants, which could affect the ability of some tenants to pay rent and may reduce the willingness of residents to remain in or move to the affected area. Therefore, as a result of the geographic concentration of our properties in Texas, we face risks, including higher costs, such as uninsured property losses and higher insurance premiums, and disruptions to our business and the businesses of our tenants.

Inflation, changes in building codes and ordinances, environmental considerations, and other factors, including terrorism or acts of war, may make any insurance proceeds we receive insufficient to repair or replace a property if it is damaged or destroyed. In that situation, the insurance proceeds received may not be adequate to restore our economic position with respect to the affected real property.

11


 

Our tenants may fail to successfully operate their businesses, which could adversely affect us.

Our ability to maximize the value in our remaining properties is dependent on the financial stability of our tenants’ financial condition. Adverse economic conditions, including as a result of the recent global outbreak of novel coronavirus disease (COVID-19), high unemployment levels, interest rates, tax rates and fuel and energy costs may have an impact on the results of operations and financial condition of our tenants and result in a decline in rent or an increased incidence of default under existing leases of our remaining properties. Such adverse economic conditions may also reduce overall demand for our remaining properties, which could adversely affect our ability to maintain our current tenants or for a potential purchaser to attract new tenants.

At any given time, our tenants may experience a downturn in their business that may weaken the operating results and financial condition of our remaining properties or of their business as whole. As a result, a tenant may decline to extend a lease upon its expiration, fail to make rental payments when due, become insolvent or declare bankruptcy. For example, three of our remaining properties are occupied by Children’s Learning Adventure USA, LLC (“CLA”). CLA is currently in bankruptcy proceedings and, as a result, this may impair our ability to receive rent or other payments from CLA, delay the sale of these properties and/or significantly decrease the value of these properties. We depend on our tenants to operate the properties we own in a manner which generates revenues sufficient to allow them to meet their obligations to us, including their obligations to pay rent, maintain certain insurance coverage and pay real estate taxes and maintain the properties in a manner so as not to jeopardize their operating licenses or regulatory status. The ability of our tenants to fulfill their obligations under our leases may depend, in part, upon the overall profitability of their operations. Cash flow generated by certain tenant businesses may not be sufficient for a tenant to meet its obligations to us. Our tenants’ failure to successfully operate their businesses could materially and adversely affect our results of operations and the value of our remaining properties.

We must pay a management fee to the Manager regardless of our performance.

The Manager is entitled to a substantial management fee of $1 million for initial annual term beginning September 20, 2019, regardless of the performance of our remaining portfolio. The Manager’s entitlement to management fees, which are not based upon performance metrics or goals, might reduce its incentive to devote its time and effort to seeking purchasers for our remaining properties. This in turn could negatively impact our ability to make distributions to the holders of Trust Units.

There is no market for our Trust Units and the Trust Units may not be transferred or assigned except in limited circumstances.

Holders of Trust Units will not be able to transfer or assign their Trust Units other than in limited circumstances, as the Trust Agreement prohibits all transfers of Trust Units, except by will, intestate succession or operation of law, and or by an executor or administrator of the estate of a holder of a Trust Unit under certain circumstances. The Trust Units are not and will not be listed on any exchange, quoted by any securities broker or dealer, or admitted for trading in any market, including the over-the-counter market. Therefore, the Trust Units are illiquid, and holders of Trust Units have limited ability to dispose of them.

Item 1B. Unresolved Staff Comments

None.

12


 

Item 2. Properties

 

Tenant Concept

Industry

Asset Type

Square Feet

 

 

City

State

Zip Code

Annualized Cash Rent

(Thousands)

(1)(2)

 

 

Remaining Lease Term (Years)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Children's Learning Adventure (3)

Education

Retail

 

25,190

 

 

The Woodlands

TX

77384

$

728

 

 

 

17.1

 

Children's Learning Adventure (3)

Education

Retail

 

25,737

 

 

East Humble

TX

77398

$

724

 

 

 

17.1

 

Children's Learning Adventure (3)

Education

Retail

 

20,032

 

 

Henderson

NV

89052

$

684

 

 

 

17.1

 

SignatureCare Emergency Center (4)

Medical / Other Office

Retail

 

8,000

 

 

Midland

TX

79707

$

432

 

 

 

7.8

 

Exceptional Emergency Center (4)(5)

Medical / Other Office

Retail

 

6,500

 

 

Orange

TX

77630

$

200

 

 

 

7.4

 

7-Eleven

Convenience Stores

Retail

 

1

 

(6)

Arlington

TX

76011

 

 

(6)

 

15.0

 

Vacant

Vacant

Retail

 

46,538

 

 

Kansas City

KS

66109

 

 

 

 

 

Vacant

Vacant

Retail

 

28,500

 

 

Sacramento

CA

95828

 

 

 

 

 

Vacant

Vacant

Retail

 

34,395

 

 

Denver

CO

80223

 

 

 

 

 

Vacant

Vacant

Retail

 

8,836

 

 

El Paso

TX

79936

 

 

 

 

 

Vacant (5)

Vacant

Retail

 

6,371

 

 

Tyler

TX

75701

 

 

 

 

 

(1)

Annualized Cash Rent and Annualized Contractual Rent were equal as of December 31, 2019.

(2)

Property cost leakage for the twelve months ended December 31, 2019 for the above assets was $2.2 million.

(3)

Tenant is in bankruptcy, but current on its obligations to the Company.

(4)

Former Neighbors Health System, Inc. properties were assumed from bankruptcy by new tenants.

(5)

Properties were sold subsequent to December 31, 2019 pursuant to the Plan of Liquidation.

(6)

Tenant provided a rent-free period during tenant’s construction phase of its asset, after which Annualized Cash Rent will be $160 thousand.

From time-to-time, we may be subject to certain claims and lawsuits in the ordinary course of business, the outcome of which cannot be determined at this time. In the opinion of management, any liability we might incur upon the resolution of these ordinary course claims and lawsuits will not, in the aggregate, have a material adverse effect on our consolidated financial position or results of operations.

Item 4. Mine Safety Disclosure

None.

13


 

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

MARKET INFORMATION FOR COMMON SHARE, HOLDERS OF RECORD AND DIVIDEND POLICY

There is no market for the Trust Units. The Trust Units are not listed on any exchange, quoted by a securities broker or dealer, nor admitted for trading in any market, including the over-the-counter market. The Trust Units are not transferable except by operation of law, will or intestate succession, all in accordance with the terms and conditions of the Trust Agreement.

RECENT SALES OF UNREGISTERED SECURITIES; USE OF PROCEEDS FROM REGISTERED SECURITIES

None.

ISSUER PURCHASES OF EQUITY SECURITIES

None.

EQUITY COMPENSATION PLAN INFORMATION

The Trust has no equity compensation plans in place.

 

 

Item 6. Selected Financial Data

The following tables set forth, on a historical basis, selected financial and operating data for the Company. The following data should be read in conjunction with our financial statements and notes thereto and Item 7. "Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this Annual Report on Form 10-K.

 

 

Statement of Net Assets

 

Liquidation Basis

 

(In thousands, except per share data)

 

December 31, 2019

 

 

 

 

 

 

Total assets

 

$

59,899

 

Liability for estimated expense in excess of estimated income during liquidation

 

 

(9,973

)

Accounts payable and other liabilities

 

 

(5,851

)

Net assets in liquidation

 

 

44,075

 

Number of shares of common stock outstanding

 

 

43,177,966

 

Net assets in liquidation value per common share

 

$

1.02

 

14


 

 

 

Going Concern Basis

Operating Data:

Eight Months Ended August 31,

 

 

Years Ended December 31,

(In Thousands)

2019

 

 

2018

 

 

2017

 

 

2016

 

 

2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

138,397

 

 

 

246,307

 

 

 

231,802

 

 

 

245,303

 

 

 

261,163

 

 

Total expenses

 

175,487

 

 

 

475,416

 

 

 

233,508

 

 

 

222,327

 

 

 

231,721

 

 

Total other (loss) income

 

(19,671

)

 

 

9,092

 

 

 

20,170

 

 

 

25,127

 

 

 

83,324

 

 

(Loss) income before income tax expense

 

(56,761

)

 

 

(220,017

)

 

 

18,464

 

 

 

48,103

 

 

 

112,766

 

 

Income tax (expense) benefit

 

(86

)

 

 

(221

)

 

 

(179

)

 

 

(181

)

 

 

33

 

 

(Loss) income from continuing operations

 

(56,847

)

 

 

(220,238

)

 

 

18,285

 

 

 

47,922

 

 

 

112,799

 

 

Income from discontinued operations

 

 

 

 

 

 

 

 

 

 

 

 

 

688

 

 

Net (loss) income and total comprehensive (loss) income

 

(56,847

)

 

 

(220,238

)

 

 

18,285

 

 

 

47,922

 

 

 

113,487

 

 

Preferred dividends

 

(10,611

)

 

 

(9,275

)

 

 

 

 

 

 

 

 

 

 

Net (loss) income attributable to common shareholders

$

(67,458

)

 

$

(229,513

)

 

$

18,285

 

 

$

47,922

 

 

$

113,487

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income per share attributable to common shareholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

(1.57

)

 

$

(5.36

)

 

$

0.43

 

 

$

1.12

 

 

$

2.65

 

 

Diluted

$

(1.57

)

 

$

(5.36

)

 

$

0.43

 

 

$

1.12

 

 

$

2.65

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

42,938,777

 

 

 

42,851,010

 

 

 

42,851,010

 

 

 

42,851,010

 

 

 

42,851,010

 

 

Diluted

 

42,938,777

 

 

 

42,851,010

 

 

 

42,851,010

 

 

 

42,851,010

 

 

 

42,851,010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per common share issued

$

0.66

 

 

$

1.66

 

 

N/A

 

 

N/A

 

 

N/A

 

 

 

 

 

 

Balance Sheet Data (end of period):

 

Going Concern Basis

 

(Dollars In Thousands)

 

2018

 

 

2017

 

 

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross investments, including related lease intangibles

 

$

2,560,745

 

 

$

2,870,592

 

 

$

2,817,732

 

Net investments

 

 

2,036,861

 

 

 

2,212,488

 

 

 

2,226,235

 

Cash and cash equivalents

 

 

161,013

 

 

 

6

 

 

 

1,268

 

Total assets

 

 

2,305,649

 

 

 

2,357,660

 

 

 

2,325,538

 

Mortgages and notes payable, net

 

 

2,138,804

 

 

 

1,926,835

 

 

 

1,339,614

 

Total liabilities

 

 

2,240,109

 

 

 

1,966,742

 

 

 

1,380,681

 

Total shareholders' and parent company (deficit) equity

 

 

(89,585

)

 

 

390,918

 

 

 

944,857

 

 

15


 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion relates to our consolidated financial statements and should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this report. Statements contained in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, and elsewhere in this report, that are not historical facts may be forward-looking statements. Such statements are subject to certain risks and uncertainties, which could cause actual results to differ materially. Some of the financial and other information presented is forward-looking in nature, including information concerning projected future occupancy rates, rental rate increases, property development timing and amount and timing of dispositions. Although the information is based on our current expectations, actual results could vary from expectations stated in this report. Numerous factors will affect our actual results, some of which are beyond our control. These include, without limitation, those set forth under “Forward Looking Statements” and “Item 1A – Risk Factors,” as well as our other filings with the SEC. You are cautioned not to place undue reliance on this information, which speaks only as of the date of this report. We assume no obligation to update publicly any forward-looking information, whether as a result of new information, future events, or otherwise, except to the extent required by law. For a discussion of important risks related to our business, financial condition and results of operations and related to investing in our securities, including risks that could cause actual results and events to differ materially from results and events referred to in the forward-looking information, see “Item 1A – Risk Factors” and "Liquidity and Capital Resources.”

OVERVIEW

SMTA was formed for the purpose of receiving, via contribution from Spirit, the legal entities which held (i) Master Trust 2014, (ii) all of Spirit's properties leased to Shopko, (iii) a single distribution center property leased to a sporting goods tenant encumbered with CMBS debt, and (iv) a portfolio of unencumbered properties, as well as newly formed legal entities that held ten additional properties contributed to SMTA with an aggregate net book value of $44.9 million, a $35.0 million Shopko B-1 Term, and a cash contribution of $3.0 million. The activities of the newly formed legal entities are not reflected in the accompanying financial statements balances or results of operations prior to May 31, 2018, but the ten additional properties, the B-1 Term Loan and cash are reflected as contributions as of their respective legal dates of transfer.

On May 31, 2018, the distribution date, Spirit completed the Spin-Off of SMTA. On the distribution date, Spirit distributed one SMTA common share for every ten shares of Spirit common stock held by each of Spirit's stockholders as of May 18, 2018, the record date. As a result, 42,851,010 shares of SMTA common were issued on May 31, 2018.

In conjunction with the Spin-Off, we and our Manager, a wholly-owned subsidiary of Spirit, entered into an Asset Management Agreement under which our Manager provided various services including, but not limited to: active portfolio management (including underwriting and risk management), financial reporting, and SEC compliance. The fees for these services were $20 million per annum. Additionally, Spirit Realty, L.P. continued as the property manager and special servicer of Master Trust 2014, under which Spirit Realty, L.P. received property management fees which accrued daily at 0.25% per annum of the collateral value of the Master Trust 2014 Collateral Pool other than specially serviced assets, which accrued daily at 0.75% per annum. SMTA and Spirit also entered into a Separation and Distribution Agreement, an Insurance-Sharing Agreement, a Tax Matters Agreement, and a Registration Rights Agreement in connection with the Spin-Off.

The accompanying financial statements include the consolidated accounts of the Company and its wholly-owned subsidiaries for the period subsequent to the Spin-Off on May 31, 2018. The pre-spin financial statements were prepared on a carve-out basis and reflect the combined net assets and operations of the predecessor legal entities which formed the Company at the time of the Spin-Off. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, and revenues and expenses during the reporting periods. The historical financial results prior to the Spin-Off include allocated expenses for certain corporate costs which we believe are reasonable. These expenses were based on either actual costs incurred or a proportion of costs estimated to be allocable to SMTA based on the relative property count of the Company to those owned by Spirit as a whole. Such costs do not necessarily reflect what the actual costs would have been if SMTA had been operating as a separate standalone public company. These expenses are discussed further in Note 13 of the accompanying financial statements.

On June 2, 2019, we announced a definitive agreement to sell our interests in Master Trust 2014 to SVC, subject to certain conditions, including shareholder approval. We filed a definitive proxy statement on August 5, 2019 and on September 4, 2019 at a Special Meeting of Shareholders, shareholders approved the Master Trust 2014 Sale, as well as the Plan of Liquidation. As a result, we adopted the liquidation basis of accounting as of September 1, 2019.

16


 

On September 20, 2019, we completed the Master Trust 2014 Sale. In conjunction with the sale, the following occurred:

 

we received net cash of $467.1 million for the sale of our interests in Master Trust 2014, including the repayment of the related party loans receivable and additional estimated costs related to the Master Trust 2014 Sale have been accrued in the accompanying consolidated statement of net assets;

 

we terminated the Property Management and Servicing Agreement for Master Trust 2014 in connection with the satisfaction and discharge of the Master Trust 2014 notes;

 

we terminated the Asset Management Agreement and paid a termination fee of $48.2 million to our Manager;

 

we entered into an Interim Management Agreement with our Manager, whereby:

 

-

we will pay $1 million during the initial one-year term and $4 million per annum during any renewal period, plus certain cost reimbursements, for the Manager to manage and liquidate our remaining assets;

 

-

such agreement is terminable at any time by us and, upon six months notice, by the Manager after the initial one-year term, in each case without a termination fee;

 

we paid $153.3 million to repurchase our SMTA Preferred Shares, including accrued dividends for the third quarter of 2019 through repurchase date; and

 

we paid $141 thousand to redeem the 125 Series B SubREIT Preferred Shares, including accrued dividends for the third quarter of 2019 through redemption date and a prepayment premium.

In October 2019, we distributed $345.4 million to SMTA’s shareholders. Additionally, in October 2019, we paid $8.0 million for the redemption of our Series A SubREIT Preferred Shares, including accrued but unpaid dividends and a prepayment premium.

On January 1, 2020, in connection with the Plan of Liquidation, SMTA entered into a Liquidating Trust Agreement and transferred and assigned our remaining properties to the Liquidating Trust. SMTA was dissolved and terminated, and all of the outstanding common shares of SMTA were cancelled and are no longer outstanding. Accordingly, on January 3, 2020, we filed a Form 15 with the SEC to terminate the registration of the common shares of SMTA under the Securities Exchange Act of 1934, as amended. Subsequent to December 31, 2019, we completed the sale of two properties (one vacant and one occupied). As a result, our remaining net assets at the date of this report are primarily comprised of nine properties. See “Item 2 – Properties” for details on these assets. The dissolution process and the amount and timing of distributions to holders of Trust Units involves risks and uncertainties. Accordingly, it is not possible to predict the timing or aggregate amount which will ultimately be distributed to holders of Trust Units, and no assurance can be given that the distributions will equal or exceed the estimate of net assets presented in the consolidated statement of net assets of the financial statements included elsewhere in this report.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our accounting policies are determined in accordance with GAAP. The preparation of our financial statements requires us to make estimates and assumptions that are subjective in nature and, as a result, our actual results could differ materially from our estimates. Prior to the adoption of the Plan of Liquidation, estimates and assumptions include, among other things, subjective judgments regarding the fair values and useful lives of our properties for depreciation and lease classification purposes, the collectability of receivables and asset impairment analysis. On September 1, 2019, we adopted the liquidation basis of accounting in connection with the approval of the Plan of Liquidation. Subsequent to the adoption of the plan of liquidation, we are required to estimate all expenses and income we expect to incur and earn through the end of liquidation including the estimated amount of cash we expect to collect on the disposal of our assets and the estimated costs to dispose of our assets. See Note 3 to the consolidated financial statements for further details.

Basis of Accounting - Liquidation Basis

As a result of the approval of the Plan of Liquidation by SMTA’s shareholders, we adopted the liquidation basis of accounting as of September 1, 2019 and for the periods subsequent to September 1, 2019 in accordance with GAAP. Accordingly, on September 1, 2019 assets were adjusted to their estimated net realizable value, or liquidation value, which represents the estimated amount of cash that we expect to collect. Estimated costs to dispose of assets have been presented separately from the real estate assets, net in the consolidated statement of net assets. Liabilities are carried at their contractual amounts due or estimated settlement amounts. The liquidation value of our net assets is presented on an undiscounted basis.

We accrue expenses and income that we expect to incur and earn through the end of liquidation to the extent it has a reasonable basis for estimation. These amounts are classified as a liability for estimated expense in excess of estimated income during liquidation on the consolidated statement of net assets. Actual expenses and income may differ from amounts reflected in the financial statements because of inherent uncertainty in estimating future events. These differences may be material.

17


 

Net assets in liquidation represents the estimated liquidation value available to shareholders upon liquidation. Due to the uncertainty in the timing of the anticipated sale dates and the estimated cash flows, actual operating results and sale proceeds may differ materially from the amounts estimated.

Purchase Accounting and Acquisition of Real Estate; Lease Intangibles

We use a number of sources to estimate fair value of real estate acquisitions, including building age, building location, building condition, rent comparables from similar properties, and terms of in-place leases, if any. Lease intangibles, if any, acquired in conjunction with the purchase of real estate represent the value of in-place leases and above or below-market leases. In-place lease intangibles are valued based on our estimates of costs related to tenant acquisition and the carrying costs that would be incurred during the time it would take to locate a tenant if the property were vacant, considering current market conditions and costs to execute similar leases at the time of the acquisition. We then allocate the purchase price (including acquisition and closing costs) to land, building, improvements and equipment based on their relative fair values. For properties acquired with in-place leases, we allocate the purchase price of real estate to the tangible and intangible assets and liabilities acquired based on their estimated fair values. Above and below-market lease intangibles are recorded based on the present value of the difference between the contractual amounts to be paid pursuant to the leases at the time of acquisition of the real estate and our estimate of current market lease rates for the property, measured over a period equal to the remaining initial term of the lease.

Impairment

We review our real estate investments and related lease intangibles periodically for indicators of impairment, including the asset being held for sale, vacant or non-operating, tenant bankruptcy or delinquency, and leases expiring in 60 days or less. For assets with indicators of impairment, we then evaluate if its carrying amount may not be recoverable. We consider factors such as expected future undiscounted cash flows, estimated residual value, market trends (such as the effects of leasing demand and competition) and other factors in making this assessment. An asset is considered impaired if its carrying value exceeds its estimated undiscounted cash flows.

Impairment is then calculated as the amount by which the carrying value exceeds the estimated fair value, or for assets held for sale, as the amount by which the carrying value exceeds fair value less costs to sell. Estimating future cash flows and fair values is highly subjective and such estimates could differ materially from actual results. Key assumptions used in estimating future cash flows and fair values include, but are not limited to, revenue growth rates, interest rates, discount rates, capitalization rates, lease renewal probabilities, tenant vacancy rates and other factors.

Impairment and Allowance for Loan Losses

We periodically evaluate the collectability of our loans receivable, including accrued interest, by analyzing the underlying property-level economics and trends, collateral value and quality, and other relevant factors in determining the adequacy of its allowance for loan losses. A loan is determined to be impaired when, in management’s judgment based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. Specific allowances for loan losses are provided for impaired loans on an individual loan basis in the amount by which the carrying value exceeds the estimated fair value of the underlying collateral less disposition costs. Delinquent loans receivable are written off against the allowance when all possible means of collection have been exhausted.

A loan is placed on non-accrual status when the loan has become 60 days past due, or earlier if management determines that full recovery of the contractually specified payments of principal and interest is doubtful. While on non-accrual status, interest income is recognized only when received.

REIT Status

SMTA elected to be taxed as a REIT for federal income tax purposes commencing with our taxable year ended December 31, 2018. We believe SMTA was organized and operated in a manner that allowed it to qualify as a REIT until January 1, 2020 when SMTA was dissolved. To maintain its REIT status, SMTA was required to annually distribute to its shareholders at least 90% of its REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gain, and meet the various other requirements imposed by the Code relating to such matters as operating results, asset holdings, distribution levels and diversity of share ownership. Provided that SMTA qualified for taxation as a REIT, it was generally not subject to corporate level federal income tax on the earnings distributed to its shareholders that it derived from its REIT qualifying activities. SMTA was still subject to state and local income and franchise taxes and to federal income and excise tax on its undistributed income. If SMTA were to fail to qualify as a REIT in any taxable year, and it was unable to avail itself of certain savings provisions set forth in the Code, all of its taxable income would be subject to federal income tax at the regular corporate rates.

18


 

RESULTS OF OPERATIONS

Liquidation Basis of Accounting

In light of the adoption of liquidation basis accounting as of September 1, 2019, the results of operations for the current year periods are not comparable to the prior year periods. On September 1, 2019, as a result of adopting the liquidation basis of accounting, we adjusted the assets and liabilities held to their expected net realizable value. Net assets in liquidation represents the estimated liquidation value available to shareholders upon liquidation. Due to the uncertainty in the timing of anticipated sale dates and estimated cash flows, actual results and sale proceeds may differ materially from amounts estimated in our financial statements.

Net realizable value of investments in real estate

For Master Trust 2014 and two properties from the Other Properties segment (the single-distribution center leased to Academy and a multi-tenant building), the net realizable value was adjusted to the signed sales agreements, which resulted in a net increase of $667.0 million. All three of these sales were completed in September 2019. In conjunction with these sales, the Master Trust 2014 debt was retired and the CMBS debt on the Academy property was assumed by the buyer. In the four months ended December 31, 2019, there was an $11.7 million increase to the estimated net realizable value of the remaining 11 properties, resulting in a total net realizable value of $37.5 million at December 31, 2019. For two of the remaining properties, which sold subsequent to December 31, 2019, the executed sales agreements were used in determining the net realizable value. For the nine remaining properties, the net realizable value was derived using broker opinions of value. The actual timing and amount of these future sales proceeds may differ materially from our current projection. For example, the impact of potential risks, or public perception of risks, related to the recent global outbreak of a novel coronavirus (COVID-19) could have a material impact on the liquidation value of remaining properties and timing of liquidation. The ultimate extent of the impact of any epidemic, pandemic or other health crisis on our business, including timing and amount of future sales proceeds, will depend on future developments, which are highly uncertain and cannot be predicted.

Net realizable value of other assets and liabilities

The evaluation of the remaining assets for collectability and remaining liabilities for expected settlement amount resulted in a net write-off of $24.1 million. This was driven by a $29.0 million write-off of straight-line rent receivables and a $3.8 million write-off of lease-incentive intangibles. This was partially offset by the accrual of a $5.2 million tax refund receivable which we expect to be able to collect in 2020 and a $1.6 million write-off of property tax liability for the transfer of the liability to SVC in conjunction with the Master Trust 2014 Sale. At December 31, 2019, the remaining other assets balance of $5.3 million is primarily attributable to the $5.2 million tax refund receivable. The remaining accounts payable and other liabilities balance of $5.9 million is primarily attributable to accrued general and administrative expenses which were incurred in 2019 and reclassified from estimated expense in excess of estimated income during liquidation to accounts payable and other liabilities as of December 31, 2019 as they are no longer estimated.  

Estimated expense in excess of estimated income during liquidation

As a basis for our assumptions, we currently expect to sell the remaining properties during 2020 and to complete our liquidation by December 31, 2020, although there can be no assurance that we will meet the expected timing. The amounts estimated below may vary significantly due to, among other things, the timing of property sales, costs incurred to complete sales, timing and amounts associated with discharging liabilities and costs associated with the winding-up of our operations. Based on the foregoing, we accrued the following:

 

Rental income: $7.6 million was accrued as of September 1, 2019 and $7.1 million was collected during the four months ended December 31, 2019, including $0.8 million of rental income for the property leased to Academy. In the fourth quarter of 2019, a remeasurement adjustment increased estimated future rental income by $0.5 million, including rental income for the 7-Eleven property, to reflect revised expectations for the timing of sales in 2020. The December 31, 2019 balance of $1.0 million is comprised of rental income on the six operating properties until their estimated sale in 2020.

 

Property costs: $1.2 million was accrued as of September 1, 2019 and $0.9 million paid during the four months ended December 31, 2019. An additional $0.1 million was reclassified to accounts payable and other liabilities in the accompanying consolidated statement of net assets for actual expenses incurred, not yet paid. In the fourth quarter of 2019, a remeasurement adjustment increased estimated future property costs by $1.1 million to reflect revised expectations for the timing of sales in 2020. The December 31, 2019 balance of $1.3 million is related to expenses expected to be incurred on the remaining properties prior to their estimated sale in 2020.

19


 

 

General and administrative: $27.6 million was accrued as of September 1, 2019 and $10.7 million paid during the four months ended December 31, 2019. The payments primarily relate to legal and consulting fees incurred in conjunction with the Master Trust 2014 Sale. $9.0 million of general and administrative expenses have been reclassified to accounts payable and other liabilities in the accompanying consolidated statement of net assets for actual expenses incurred, not yet paid, as of December 31, 2019In the fourth quarter of 2019, a remeasurement adjustment decreased estimated general and administrative expenses by $1.7 million to reflect lower actual costs on the Master Trust 2014 Sale than estimated and the reduction in audit fees as a result of transferring to a liquidating trust. The December 31, 2019 balance of $6.2 million includes estimates for professional fees for legal, accounting, tax and consulting services, compensation to the Company’s CEO and members of the board of trustees, insurance, taxes and other costs of liquidation.

 

Related party fees: $51.7 million was accrued as of September 1, 2019 and $49.9 million paid during the four months ended December 31, 2019. The payments primarily relate to the $48.2 million termination fee for the Asset Management Agreement. In the fourth quarter of 2019, a remeasurement adjustment of $0.8 million decreased estimated related party fees to reflect revised expectations regarding the fees expected to be incurred subsequent to the termination of the Interim Management Agreement. The December 31, 2019 balance of $0.9 million is comprised of 12 months of expected management fees.

 

Cost of real estate investment sales: $5.0 million was accrued as of September 1, 2019 and $3.7 million paid during September 2019 for the sales completed. In the fourth quarter of 2019, a remeasurement adjustment of $1.3 million increased estimated costs of real estate investments sales to reflect revised estimates of selling costs on the remaining assets. The December 31, 2019 balance of $2.6 million represents the estimated costs of sales for the remaining 11 properties.

Due to the adoption of the Plan of Liquidation, we are no longer reporting funds from operations or adjusted funds from operations as we no longer consider these to be key performance measures.

Changes in Liquidity

In the four months ended December 31, 2019, our primary source of cash flow was net proceeds of approximately $467.1 million from the sale of our interests in Master Trust 2014, including the repayment of the related party loans receivable, and $7.1 million of cash rent collected. This was offset by:

 

payment of cash liquidating distribution of $345.4 million, or $8.00 per common share,

 

payment of $153.3 million to repurchase our SMTA Preferred Shares, including accrued dividends,

 

payment of $48.2 million to terminate the Asset Management Agreement in conjunction with the Master Trust 2014 sale,

 

repayment of $33.5 million in principal amounts due to the Manager under related party notes, and

 

payment of $15.3 million in costs related to operating remaining properties during liquidation and real estate sales completed in September 2019.

Going Concern Basis of Accounting

Under going concern accounting, the comparability of financial data from period to period was primarily affected by the sales of real estate assets, as described below by reportable segment.

Master Trust 2014

In the eight months ended August 31, 2019, the Company had no acquisitions and disposed of 15 properties in the Master Trust 2014 segment, with a Real Estate Investment value of $15.1 million. These sales were the primary driver for the decrease of $0.6 million in average monthly loss for the eight months ended August 31, 2019 compared to the average monthly loss for the year-ended December 31, 2018. While average rental income per month decreased by approximately $0.3 million, average gain on disposition of assets per month increased by approximately $0.1 million. This was a result of the 15 sales producing net gains of $1.6 million for the eight months ended August 31, 2019, compared to the disposition of 35 properties from the Master Trust 2014 segment producing net gains of $1.3 million for the year ended December 31, 2018.

In addition to the changes resulting from the sales, average impairment per month decreased period over period by approximately $0.9 million. During the eight months ended August 31, 2019, $6.0 million of impairment was recorded on 11 properties in the Master Trust 2014 segment, compared to $19.8 million of impairment recorded during the year ended December 31, 2018. This was partially offset by average property expenses per month increasing by approximately $0.1 million.

 

20


 

Other Properties

In the eight months ended August 31, 2019, the Company had no acquisitions and disposed of 85 properties in the Other Properties segment, with a Real Estate Investment Value of $183.5 million, of which 83 properties were Shopko properties. Our indirect wholly-owned subsidiaries as borrowers under the Shopko CMBS Loan agreements defaulted on the loans when these entities ceased to make payments as a result of Shopko ceasing to pay its rent obligations following its bankruptcy filing. On March 1, 2019, the Shopko Lenders foreclosed on the equity of the entity that owns the four property-owning subsidiaries, resulting in the disposition of the Shopko properties. The Shopko activity was the primary driver for the decrease of $12.1 million in average monthly loss for the eight months ended August 31, 2019 compared to the average monthly loss for the twelve months ended December 31, 2018:

 

average rental income per month decreased by approximately $3.2 million;

 

average property expenses per month decreased by approximately $0.6 million;

 

average depreciation and amortization per month decreased by approximately $1.2 million;

 

average impairments, net of recoveries for loan losses per month decreased by approximately $16.9 million, primarily as a result of $202.3 million of impairment charges and allowance for loan losses related to the Shopko bankruptcy filing during the twelve months ended December 31, 2018; and

 

average loss on debt extinguishment per month increased by approximately $2.7 million, primarily as a result of a loss on debt extinguishment of $21.3 million on the foreclosure during the eight months ended August 31, 2019.

In addition to the changes resulting from the Shopko activity, gain on disposition of assets per month decreased by approximately $0.7 million. This was the result of two properties disposed of during the eight months ended August 31, 2019, excluding the Shopko properties, producing net gains of $0.1 million, compared to the disposition of twelve properties from the Other Properties segment producing net gains of $8.1 million for the year ended December 31, 2018.

Cash Flows

As of August 31, 2019, we had $159.4 million in cash, cash equivalents and restricted cash as compared to $205.1 million as of December 31, 2018.

The decrease in cash was primarily attributable to payment of $85.7 million in common share dividends, repayments of mortgages and notes payable of $27.0 million, restricted cash surrendered in loan foreclosure of $21.2 million, payments of preferred dividends totaling $8.0 million, and $5.9 million of capitalized real estate expenditures. These cash outflows were partially offset by approximately $33.2 million of cash inflows from operating activities, collections of principal on loans receivable totaling $36.4 million, and $32.7 million in net proceeds from the disposition of 100 properties.

LIQUIDITY AND CAPITAL RESOURCES

Short-term Liquidity and Capital Resources

On a short-term basis, our principal demands for funds will be for operating expenses and distributions to the holders of Trust Units. As of December 31, 2019, our cash on hand totalled $17.2 million. We believe that remaining cash on hand will be sufficient to fund our operating expenses incurred during liquidation and other short-term liquidity requirements.

Long-term Liquidity and Capital Resources

On September 4, 2019, SMTA shareholders approved both the Master Trust 2014 Sale and the Plan of Liquidation. As a result, we expect that our primary uses of capital will be for the payment of operating expenses during liquidation and distributions to the holders of Trust Units. We believe that cash on hand and proceeds from the remaining assets will provide sufficient liquidity to meet our obligations over the next 12 months or any shorter period during which we complete our liquidation.

Description of Debt

During the year ended December 31, 2019, the Company sold or retired all of its previously held debt. See Note 7 to the accompanying financial statements for further discussion.

Contractual Obligations

The Company had no outstanding purchase obligations or tenant improvement obligations as of December 31, 2019.

Liquidating Distributions

The actual amount and timing of, and record dates for, future liquidating distributions on our Trust Units will be determined by our trustees and will depend upon the timing and proceeds of the sales of our assets and the amounts deemed necessary

21


 

by our trustees to pay or provide for our liabilities and obligations. Any such liquidating distributions on the Trust Units will be deemed a return of capital until the applicable holder has received liquidating distributions totaling its cost basis.

Off-Balance Sheet Arrangements

As of December 31, 2019, we did not have any material off-balance sheet arrangements.

22


 

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to financial market risks. Interest rates and other factors, such as occupancy, rental rates and the financial condition of our tenants, influence our performance more so than does inflation. Changes in interest rates do not necessarily correlate with inflation rates or changes in inflation rates. We generally offer leases that provide for payments of base rent with scheduled increases, based on a fixed amount or the lesser of a multiple of the increase in the CPI over a specified period term or fixed percentage and, to a lesser extent, contingent rent based on a percentage of the tenant’s gross sales, to help mitigate the effect of inflation. Because the properties in our portfolio are generally leased to tenants under triple-net leases, where the tenant is responsible for property operating costs and expenses, our exposure to rising property operating costs due to inflation is mitigated. However, as of December 31, 2019, five of our remaining properties were vacant, and we estimate incurring $1.3 million in additional property costs prior to completing our liquidation.

As of December 31, 2019, we had no outstanding debt and, therefore, changes in market interest rates would have no impact on the estimated costs expected to be incurred during the liquidation of the Company although changes in interest rates could have an impact on our property liquidations as a result of such interest rate changes having an impact on the ability of potential purchasers to obtain financing.

The estimated liquidation values of our remaining properties were based on assumptions and market conditions at December 31, 2019. The subsequent global outbreak of the novel coronavirus (COVID-19) could have a material impact on our business, including without limitation, the financial condition of existing tenants, the liquidation value of remaining properties, the timing of liquidation and the ability of potential purchasers to obtain financing. In accordance with the accounting rules for liquidation accounting, the values as of December 31, 2019 have not been adjusted for the subsequent outbreak of this pandemic. By way of example, for each 10% decrease in estimated liquidation value of properties that were not sold subsequent to December 31, 2019 due to the pandemic, the resulting liquidating distribution would be reduced by approximately $0.08 per Trust Unit, compared to assumptions as of December 31, 2019. The ultimate extent of the impact of any epidemic, pandemic or other health crisis on our business, financial condition and plan of liquidation will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of such epidemic, pandemic or other health crisis and actions taken to contain or prevent their further spread, among others. Accordingly, we cannot predict the extent to which our liquidation of assets and ultimate distributions will be affected.

23


 

Item 8. Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

Financial Statements and Supplemental Data

 

Consolidated Statement of Net Assets (Liquidation Basis) of Spirit MTA REIT as of December 31, 2019

25

Consolidated Balance Sheet (Going Concern Basis) of Spirit MTA REIT as of December 31, 2018

26

Consolidated Statement of Changes in Net Assets (Liquidation Basis) of Spirit MTA REIT for the Period from September 1, 2019 through December 31, 2019

27

Consolidated Statements of Operations and Comprehensive Income (Loss) (Going Concern Basis) of Spirit MTA REIT for the Eight Months Ended August 31, 2019 and for the Years Ended December 31, 2018 and 2017

28

Consolidated Statements of Changes in (Deficit) Equity (Going Concern Basis) of Spirit MTA REIT for the Eight Months Ended August 31, 2019 and for the Years Ended December 31, 2018 and 2017

29

Consolidated Statements of Cash Flows (Going Concern Basis) of Spirit MTA REIT for the Eight Months Ended August 31, 2019 and for the Years Ended December 31, 2018 and 2017

30

Notes to Consolidated Financial Statements

32

24


 

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

SPIRIT MTA REIT

Consolidated Statement of Net Assets

(In Thousands)

(Liquidation Basis)

(Unaudited)

 

 

 

December 31, 2019

 

Assets

 

 

 

 

Real estate assets, net

 

$

37,450

 

Cash and cash equivalents

 

 

17,183

 

Other assets

 

 

5,266

 

Total assets

 

$

59,899

 

Liabilities

 

 

 

 

Liability for estimated expense in excess of estimated income during liquidation

 

$

9,973

 

Accounts payable and other liabilities

 

 

5,851

 

Total liabilities

 

 

15,824

 

Commitments and contingencies (see Note 9)

 

 

 

 

Net assets in liquidation

 

$

44,075

 

 

See accompanying notes.

25


 

SPIRIT MTA REIT

Consolidated Balance Sheet

(In Thousands, Except Share and Per Share Data)

(Going Concern Basis)

(Unaudited)

 

 

 

December 31, 2018

 

Assets

 

 

 

 

Investments:

 

 

 

 

Real estate investments:

 

 

 

 

Land and improvements

 

$

870,549

 

Buildings and improvements

 

 

1,526,933

 

Total real estate investments

 

 

2,397,482

 

Less: accumulated depreciation

 

 

(459,615

)

 

 

 

1,937,867

 

Loans receivable, net

 

 

30,093

 

Intangible lease assets, net

 

 

79,314

 

Real estate assets held for sale, net

 

 

7,263

 

Net investments

 

 

2,054,537

 

Cash and cash equivalents

 

 

161,013

 

Deferred costs and other assets, net

 

 

83,087

 

Goodwill

 

 

7,012

 

Total assets

 

$

2,305,649

 

Liabilities and shareholders' deficit

 

 

 

 

Liabilities:

 

 

 

 

Mortgages and notes payable, net

 

$

2,138,804

 

Intangible lease liabilities, net

 

 

17,676

 

Accounts payable, accrued expenses and other liabilities

 

 

83,629

 

Total liabilities

 

 

2,240,109

 

Commitments and contingencies (see Note 6)

 

 

 

 

Redeemable preferred equity:

 

 

 

 

SMTA Preferred Shares, $0.01 par value, $25 per share liquidation preference, 20,000,000 shares authorized: 6,000,000 shares issued and outstanding at December 31, 2018

 

 

150,000

 

SubREIT Preferred Shares, $0.01 par value, $1,000 per share liquidation preference, 50,000,000 shares authorized: 5,125 shares issued and outstanding at December 31, 2018

 

 

5,125

 

Total redeemable preferred equity

 

 

155,125

 

Shareholders' deficit:

 

 

 

 

Common shares, $0.01 par value, 750,000,000 shares authorized; 43,000,862 shares issued and outstanding at December 31, 2018

 

 

430

 

Capital in excess of common share par value

 

 

201,056

 

Accumulated deficit

 

 

(291,071

)

Total shareholders' deficit

 

 

(89,585

)

Total liabilities and shareholders' deficit

 

$

2,305,649

 

 

See accompanying notes.

 

 

26


 

SPIRIT MTA REIT

Consolidated Statement of Changes in Net Assets

(In Thousands)

(Liquidation Basis)

(Unaudited)

 

 

 

Period from

September 1, 2019

through

December 31, 2019

 

Net assets in liquidation, beginning of period

 

$

377,226

 

Change in liquidation value of investments in real estate

 

$

11,719

 

Remeasurement of assets and liabilities

 

$

554

 

Net increase in liquidation value

 

$

12,273

 

Liquidating distributions to common shareholders

 

 

(345,424

)

Net assets in liquidation, end of period

 

$

44,075

 

 

See accompanying notes.

27


 

SPIRIT MTA REIT

Consolidated Statements of Operations and Comprehensive Income (Loss)

(In Thousands, Except Share and Per Share Data)

(Going Concern Basis)

(Unaudited)

 

 

 

Eight Months Ended August 31,

 

 

Year Ended December 31,

 

 

Year Ended December 31,

 

 

 

2019

 

 

2018

 

 

2017

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Rental income

 

$

132,812

 

 

$

240,410

 

 

$

226,586

 

Interest income on loans receivable

 

 

2,669

 

 

 

3,080

 

 

 

768

 

Other income

 

 

2,916

 

 

 

2,817

 

 

 

4,448

 

Total revenues

 

 

138,397

 

 

 

246,307

 

 

 

231,802

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative

 

 

5,703

 

 

 

13,425

 

 

 

20,491

 

Related party fees

 

 

18,057

 

 

 

19,533

 

 

 

5,500

 

Transaction costs

 

 

6,223

 

 

 

8,676

 

 

 

4,354

 

Shopko-related expenses

 

 

10,116

 

 

 

 

 

 

 

Property costs (including reimbursable)

 

 

4,887

 

 

 

12,758

 

 

 

12,496

 

Interest

 

 

78,254

 

 

 

114,997

 

 

 

76,733

 

Depreciation and amortization

 

 

47,378

 

 

 

84,678

 

 

 

80,386

 

Impairment, net of recoveries for loan losses

 

 

4,869

 

 

 

221,349

 

 

 

33,548

 

Total expenses

 

 

175,487

 

 

 

475,416

 

 

 

233,508

 

Other (loss) income:

 

 

 

 

 

 

 

 

 

 

 

 

Loss on debt extinguishment

 

 

(21,411

)

 

 

(366

)

 

 

(2,223

)

Gain on disposition of real estate assets

 

 

1,740

 

 

 

9,458

 

 

 

22,393

 

Total other (loss) income

 

 

(19,671

)

 

 

9,092

 

 

 

20,170

 

(Loss) income before income tax expense

 

 

(56,761

)

 

 

(220,017

)

 

 

18,464

 

Income tax expense

 

 

(86

)

 

 

(221

)

 

 

(